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Dismissals in Japan

Part One: How Strict Is Japanese Law on Employers?


Part Two: How Frequently Do Employers Dismiss Employees?
Kazuo Sugeno
Keiichi Yamakoshi

The Japan Institute for Labour Policy and Training

Dismissals in Japan

Part One: How Strict Is Japanese Law on Employers?


Part Two: How Frequently Do Employers Dismiss Employees?
Kazuo Sugeno
President, the Japan Institute for Labour Policy and Training
Professor Emeritus of the University of Tokyo
Keiichi Yamakoshi
Executive Director, the Japan Institute for Labour Policy and Training

The articles were published in Japan Labor Review which was a quarterly journal
of research in the field of labor studies issued by the Japan Institute for Labour
Policy and Training.
Part One: Japan Labor Review, vol. 11. No. 2, Spring
Part Two: Japan Labor Review, vol. 11. No. 4, Autumn.

Dismissals in Japan
Part One: How Strict Is Japanese Law on Employers?

Introduction
In its 2004 Employment Outlook, the Organisation for Economic Co-operation and
Development (OECD) estimated that the legal protection of permanent workers against individual dismissal in Japan was one of the most strictly regulated among nations. However,
in its 2013 Employment Outlook, the OECD reassessed the laws regarding dismissals
among its member nations and reclassified Japan in the top third of OECD countries in
which regulation is less stringent.1 On the other hand, a prestigious newspaper commented
recently that in Japan, employment laws make it almost impossible to fire regular workers.2 Such stereotypical view still exists among international observers. In this paper, the
authors provide more precise information on the law and practice of dismissals in Japan.
This Part One gives an overview of the law regulating dismissals. In Part Two to follow
later, the authors will outline the practice of dismissals in Japan.

1.

Substantive Law: Overview

In Japan, the Civil Code (CC) has, since before World War II, provided that either
party can terminate a contract of employment at any time by giving two weeks advance
notice. The CC thus guarantees the freedom of dismissal to the employer.3
This general principle has been modified in part by the labor law reforms since World
War II.
The Labor Contract Act (LCA) restricts the freedom of dismissal by enjoining abusive dismissal. The Labor Standards Act (LSA) and several other Acts restrain certain types
of dismissal, and the LSA strengthens the notice of a dismissal to thirty days advance notice with criminal sanctions.4
1

OECD, Employment Outlook 2013.


Editorial, Abes Missing Arrow, Financial Times, October 7, 2013.
3
The Civil Code provides that If employment is not for a definite period, either party may request to terminate the contract at any time, in which event the contract will be terminated in two
weeks after the request is made. (627CC)
4
Dismissal in this article signifies the employers expressed intention to terminate an employment contract with an indefinite period. It is distinguished from the employers refusal to renew a
2

2.

The Concept of Abusive Dismissals

2.1 History
The Civil Code (CC), which still provides the freedom to terminate employment, was
established in 1896, and for many years thereafter, Japan had no legislation regulating abusive or unfair dismissals. During the post-World War II Reform, the Labor Union Act of
1945 and 1949 came to prohibit the dismissal of union members as an unfair labor practice.
Yet, the Labor Standards Act (LSA) of 1947 maintained the CCs freedom of dismissal and
merely strengthened the requirement to give notice of dismissal. In the 1950s, nevertheless,
lower courts came to nullify abusive dismissals using a general principle in the CC which
restricts the abuse of rights. Such decisions continued to accumulate in lower courts which
even ruled that a dismissal without appropriate reasons is invalid. Between 1975 and 1977,
the Supreme Court, in two cases, endorsed the interpretation of lower courts to formulate
that a dismissal should be considered null and void as an abuse of right without objective
and appropriate reasons.
In 2003, the LSA was revised to integrate the case law rule of abusive dismissals established by the Supreme Court. The case law rule was then moved from the LSA to the
Labor Contract Act when the latter Law was enacted in 2007.

2.2 The LCA Provision regarding Abusive Dismissals


The Labor Contract Act provides that a dismissal shall, if it lacks objectively reasonable grounds and is not considered to be appropriate in general societal terms, be treated
as an abuse of right and be invalid (16).
This provision applies to all kinds of dismissaldismissals due to an employees
misconduct, an employees incapability and job redundancy. It applies not only to individual
dismissals but also to collective dismissals.

3.

Prohibited Dismissals

Apart from the abusive-dismissal provision in the Labor Contract Act, Japanese labor-law statutes prohibit the employer from discharging employees discriminatorily on the
grounds of sex, nationality, creed, etc. These statutes also prohibit dismissals during family
leave related to childbirth, maternity or family care.5
fixed-term employment upon its expiration, or the employees voluntary or agreed resignation from
employment.
5
In detail, Japanese Acts prohibit the employer from dismissing his/her employees:
(a) during a period of incapability for work caused by a work-related accident (19LSA).
(b) during a period of statutory childbirth leave (19LSA).
(c) on the grounds of nationality, creed or social status (3LSA).
(d) on the grounds of sex, marriage, pregnancy (Act on Securing, Etc. of Equal Opportunity and
Treatment between Men and Women in Employment).

4.

Notice of Dismissals

The Labor Standards Act (LSA) provides that the employer must give at least thirty
days advance notice before dismissal (20). Notice is required regardless of length of service (there are exceptions, such as temporary workers for a term of less than two months).
The LSA also provides that the employer must deliver to the retiring employee a certificate
stating the reasons for retirement upon his/her request (22). This provision also applies to
dismissals.

5.

Criteria of Abusive Dismissals

5.1 Introduction
For understanding the criteria of abusive dismissals in Japan, one should first know
that firms in Japan usually specifically list the reasons for dismissal in their employment
regulations. The employee regulations (literally, work rules) are drawn up by the employer and stipulate the rules and working conditions of the establishment. The Labor Contract
Act endorsed its case-law binding effect on labor relations on condition that the regulations
provide reasonable rules or working conditions and are promulgated to the employees of the
establishment. The Labor Standards Act requires the employer to seek the opinion of the
union organizing a majority of employees or, if there is no such union, a representative of a
majority of employees of the establishment. If there is a union organizing such employees,
the employer usually negotiates with the union when making or changing the employee
regulations to obtain the unions agreement.
The major reasons for dismissal listed in the employee regulations can be roughly
classified into three types: employees misconduct, employees incapability and the firms
economic necessity. When judging whether a dismissal is to be nullified as abusive, the
court starts with the question of whether the alleged misconduct, incapability or economic
necessity falls under the reasons for dismissal set forth in the employee regulations. The
court first assesses the reasonableness of the statutory reason, and then examines its applicability to the dismissal.

(e) on the grounds of discrimination against a part-time worker (Act on Improvement, Etc. of Employment Management for Part-Time Workers).
(f) on the grounds of labor union membership or participation in labor union activities (Labor Union
Act).
(g) by reason of applying for statutory maternity/paternity leave, sick/injured child care leave or
nursing care leave (Act on the Welfare of Workers Who Take Care of Children or Other Family
Members Including Child Care and Family Care Leave).
(h) by reason of reporting the facts regarding violation of Acts related to labor standards to a labor
standards inspector (104 LSA, etc.)
(i) by reason of whistle-blowing protected by the Whistle Blowing Protection Act.

5.2 Dismissal by Reason of Employees Misconduct


Employees misconduct spelled out in the employee regulations includes negligence
of duties, defiance or disobedience of job-related orders or instructions, obstruction or disturbance of the work, violation of workplace discipline, infringement of the interest or reputation of the employer in the employees private life and falsification of the employees
past record. In the case of an employees misconduct, the court usually takes into consideration the following factors in making a decision on whether the dismissal is abusive:
(a) Components of facts regarding the misconduct such as its manner, gravity, motives,
circumstances, damages or disorder caused, etc.
(b) Propriety of the dismissal as a means of sanction, i.e., whether the dismissal is too
harsh considering the overall nature, type and degree of the misconduct as well as the
employees record. For example, the employee regulations usually institute disciplinary sanctions less rigorous than dismissal, such as suspension of employment for a
certain period, demotion, monetary punishment and reprimand, and the court may
evaluate the dismissal as too severe if it finds that past similar misconducts had been
disposed of by milder means.
(c) Due process, such as whether the employee was given an opportunity to give an explanation in his/her defense, and whether he/she had received a proper warning upon
committing a similar but less serious misconduct in the past.

5.3 Dismissal by Reason of Employees Incapability


There are three main types of employees incapability:
(a) Loss of occupational capacity as a result of injury or illness: In this type, the court
usually considers its nature and extent to see whether the employee became unable to
fulfill the requirements of the occupation permanently. If the employee is likely to
recover his/her capacity in due course through medical treatment, the court will require the employer to give the employee a chance to do so. As a matter of practice,
the employer tends to grant sick-leave up to a certain (lengthy) period specified in the
employee regulations. The employer will dismiss the employee only when he/she
does not recover the capacity to return to work within the leave period.
(b) A certain period (usually specified in the employee regulations of the firm) of absence
not informed by the employee (typically, disappearance, confinement due to criminal
charges, etc.). The court will endorse the validity of dismissal if it finds that the employer waited long enough to terminate employment.
(c) Insufficient job performance: In this type of dismissal, the court will examine the nature and degree of insufficient performance to see if the employer has no other recourse than dismissing the employee. The court will consider whether the employer
offered any assistance to the employee including education and training to improve
their performance, or whether the employer is not making an effort to match the employee to a job more fitting to the employees qualifications. The court also tends to
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require the employer to give a warning of termination. The court considers these various aspects in the case of ordinary employees in long-term employment. On the other
hand, the court is more likely to approve the validity of dismissals of well-paid professional or managerial employees who were recruited mid-career but who failed to
exhibit the expected high level of special capability.

5.4 Dismissals by Reason of Firms Economic Necessity (Collective Redundancy)


The Labor Contract Act (LCA) does not include any substantive or procedural regulation about collective dismissals to cope with redundancy, and it is left to the courts to decide
whether such collective dismissal constitutes abusive dismissal under 16LCA. The employee regulations are also inclined to give an abstract expression such as compelling economic reasons of the firm. Since the latter half of the 1970s, the court has been formulating
four factors to be considered for deciding the abusiveness of economic dismissals:
(a) Economic necessity of reducing the workforce
(b) Efforts made to avoid dismissal in attaining the reduction
(c) The method of selecting the employees to be dismissed, i.e., whether the selection is
done fairly on the basis of objective criteria
(d) The extent and manner of labor management consultation in executing the collective
dismissal
The courts have already judged many cases, which have been analyzed and classified
by jurists6 and presented to those who are in charge of HRM.
Japanese labor legislation does not impose on the employer the requirement to create
a social plan to reduce the hardship of collective dismissal. However, the Labor Union Act
requires the employer to bargain collectively with the labor union organizing his/her employees. Therefore, the employer is required to bargain with the union about a workforce
reduction or collective dismissal involving its members. In fact, when an employer intends
to reduce the workforce, the management will usually engage in extensive negotiations with
the union to work out the size, timing and method of the reduction, and the social plan is
usually agreed on particularly when it includes soliciting voluntary retirement.
Also, as explained in (d) above, the courts consider the extent and manner of labor
management consultation as one of the major factors in deciding whether an economic dismissal constitutes an abuse of dismissal right. The employer is pressed to explain and consult with the union or representatives of the relevant employee group in carrying out a restructuring involving economic dismissals. The employer also tends to present some kind of
social plan to minimize the reaction of employees against the restructuring.7
6

See for example, Kaoko Okuda, Seiri Kaiko no Zian Ruikei to Handan Kijun [Types of collective redundancy and criteria for judgment], Journal of Labour Law 98 (2001): 4763.
7
In this context, there is one administrative regulation in regard to collective dismissals due to redundancy. When a firm intends to terminate more than thirty employees, the employer is required to
submit a re-employment assistance plan to the Public Employment Security Office. This plan requires

6.

Severance Pay

Severance pay is not required by any Acts in Japan. There is a subsidy program instituted by the Employment Insurance System to help small companies with establishing severance pay systems.
On the other hand, it is a long-standing and widely-established practice that firms offer considerable retirement benefits to retiring employees, in the form of lump-sum payments and/or pensions, and this benefit is offered even in the case of discharges; except in
the case of disciplinary ones for serious misconduct. Such benefits function, in effect, as
severance payment for discharge. In the case of soliciting voluntary retirement for workforce reduction, firms usually offer a considerable severance payment in addition to the retirement benefit. If a union exists in the firm, the amount of such payment will be one of the
major points of negotiations.

7.

Administrative and Judicial Procedures to Resolve Dismissal Disputes

7.1 Overview
There are several administrative and judicial procedures for dismissed employees
who wish to raise their grievance. These procedures are structured as a four-layered system:
the first and second layers are the consulting and conciliation services offered by the Labor
Administration and the third and fourth layers are the labor-tribunal and the civil-procedure
systems administered by the judiciary. Those four layered services and procedures are elective for grievants; namely, the parties of the disputes are free to choose (or skip) any of the
services or procedures in any order. However, as a matter of practice, the parties tend to
start with the first layer, and proceed to the second, then to the third, and finally to the
fourth layer, if the dispute is not resolved at the first or intermediate layers.

the employer to consult with the labor union organized in the firm.

7.2 Administrative Remedies


(a) The Information and Consultation Services
The first layer is the information and consultation services offered by Regional Offices of the National Labor Administration.8 When requested, such Regional Offices provide such services to both employers and employees regarding all kinds of questions arising
from employment relations. Thus, if an employee feels that his/her dismissal was unfair,
he/she may bring the grievance to those offices to clarify and assess his/her legal position.
The parties using such services are frequently satisfied or relieved merely by understanding
the merits or demerits of their case through counseling in the Office. However, if the party
using the service wishes to pursue his/her legal claim, the Office may request the employer
to appear in the Office to discuss how to resolve the dispute. This advisory service is done
informally and expeditiously (usually within one month from the date of consultation).

(b) The Conciliation Service


The second layer is the conciliation service performed by a panel9 set up in the Regional Offices mentioned above. The panel is usually composed of practicing lawyers and
law professors serving on a part-time basis. If requested by either party of a dispute concerning employment relations, a member of the panel, with the assistance of the staff of the
Office, ascertains the facts of the case and the allegations of both parties, and proposes a
settlement. The service is offered without charge, and is accomplished expeditiously, in
most cases, within one session of a few hours (within two months of the request for conciliation). The success rate of such conciliation services is about 40 percent.10 Dismissal disputes are one of the most major types of disputes handled in this expeditious conciliation
service. When successfully conciliated, they are mostly resolved with a modest monetary
payment.11

7.3 Judicial Procedures


(a) The Labor Tribunal System
The third layer is the Labor Tribunal System instituted in the judiciary. According to
the Labor Tribunal Act of 2004, either party in an employment relationship can bring a dispute of rights arising from employment relations under this procedure in the district court. A
tribunal composed of one career judge and two part-time experts in labor relations examine
8

More exactly, the Prefectural Labour Bureaus and the Labour Standards Inspection Offices of the
Ministry of Welfare and Labour.
9
The Dispute Adjustment Committee.
10
About 70% of the cases in which the other party appears.
11
The amount of payment is rather inexpensive; a JILPT research found that in 65.7% of the employment termination disputes successfully conciliated, payments fell in the range of
50,000400,000 (The Japan Institute for Labour Policy and Training [JILPT], Kobetsu Rodo Kankei
Funso Shori Jian no Naiyo Bunseki [Content analysis on the treatment of individual labor-related
disputes], JILPT Research Report no.123 [Tokyo: JILPT, 2010]).

the written claims and responses and hold informal hearings to clarify the facts and the issues. The tribunal then makes mediation efforts, and, if such efforts fail, renders a decision
specifying measures to resolve the case. The decision is not binding, and if either party objects, the case is automatically transferred to the formal civil procedure. The Law requires
the tribunal to dispose of the case within three sessions, and is premised upon the cases
lasting a few months. The parties usually hire lawyers to go through such procedures.
As a matter of practice, about 80% of the disputes brought in the labor tribunal procedure are resolved successfully; about 70% through the panels mediation proposals and
10% through advisory decisions. Of the remaining about 20% of the disputes, 10% are
withdrawn and only 10% (about a half of the advisory decisions) are transferred to the formal civil procedure explained below.
Here also, dismissal disputes are the most common type of disputes handled. They are
resolved in most cases by monetary agreements (mediation) or awards (decisions). Generally speaking, the amount is much higher than that attained in the administrative conciliation services,12 but less than that in the formal procedure.

(b) The Civil Procedure


The fourth layer is the civil procedure. An employee may file a suit to confirm or restore his/her right with the civil court. This is a formal adversarial procedure, in which the
parties are mostly represented by their own lawyers. The court clarifies issues by grasping
allegations expressed by their briefs, and examines exhibits and listens to the testimony of
witnesses through formal hearings. After this process, the court usually tries to settle the
dispute, and, if it fails, renders a judgment. On average, it takes about a year for the court to
dispose of the case either by a settlement or a judgment.
In judging a dismissal dispute, if the court finds that the dismissal was abusive and,
accordingly, invalid, the court will confirm the continuation of employment relations and
will order the employer to compensate the employee for the loss of earnings. The amount of
compensation is usually the sum of the salary that the employee would have been paid between the date of the dismissal and the date of the court judgment. Even when the dismissal
is found invalid, in effect the employer is obliged to continue to pay the salary that the employee had been earning until the dismissal, and the employee has no right to actual reinstatement.13

12

One survey found that the average amount is around 1,000,000 or 34 months salary. Kazuo
Sugeno and others, ed., Rodo Shinpan Seido no Riyosha Chosa [Labor tribunal system: Users survey]
(Tokyo: Yuhikaku, 2013), 102.
13
There is no statute of limitation for claims of abusive dismissal.

Table 1. Statistics on the Settlement of Dismissal Disputes (Fiscal 2012)

Sources: From the statistics of the Ministry of Welfare and


Labour and the Supreme Court.
Note: *These figures include all kinds of disputes involving
all kinds of employment termination (not only dismissals,
but also alleged resignation, refusal of renewing
fixed-term employment upon its expiration, compulsory
retirement, etc.) and requesting confirmation of employee status. Nevertheless, the predominant type is dispute
involving dismissal.

7.4 Statistics
Table 1 shows the number of dismissal disputes brought in or handled by the services
or procedures described above. First, the table shows that more than 50,000 dismissal cases
are handled in fiscal 2012 by the information and consultation services. In other words, such
services play a major role in resolving dispute dismissals. Next, approximately 5,000 disputes involving dismissals are brought either to conciliation, labor tribunal or civil procedures every year, and a great majority of such disputes are resolved informally and expeditiously through the administrative conciliation services or the judicial labor-tribunal system,
mostly in the form of monetary payment. Relatively few dismissal disputes were filed with
the formal civil procedure: less than 1,000 cases in fiscal 2012. In addition, a majority of
such civil litigations are settled, mostly monetarily, and judgments are rendered in only a
third of them. Furthermore, employees won in just under half of such judgments.

Conclusion
This article on Japanese labor law regarding dismissals clearly shows that the claim
in Japan, employment laws make it almost impossible to fire regular workers is a gross
exaggeration of the regulatory aspect of Japanese dismissal law.
In terms of the procedural or remedial aspect of Japanese dismissal law, more than
50,000 disputes involving dismissals are brought before the administrative information and
consultation services and approximately 5,000 dismissal disputes are filed with the administrative conciliation service, the labor-tribunal and civil procedures in the judiciary in one
year. Most of them are disposed of informally and expeditiously with relatively inexpensive
monetary arrangements; only a small number of dismissal disputes attain judgments confirming continuation of employment relations. On the whole, the dispute resolution systems
are not so onerous that employers are reluctant to resort to dismissals. For employees, on the
other hand, the systems provide a good range of recourses that they can select in accordance
with their needs.
Also, the substantive rules of dismissals are not so strict as to make employers abandon the idea of dismissing employees who have committed serious misconduct, who exhibit
exceptionally poor job performance or when the firm runs into serious economic difficulties.
Basically, Japanese dismissal law is premised upon the employers freedom of dismissal,
and protects the interest of employees by restraining its abusive exercise. The abusive dismissal doctrine established by case law and incorporated into the Labor Contract Act is a
legal framework that balances the interest of employers and employees in regard to dismissals.
In conclusion, Japanese dismissal law is neither too strict nor too loose for the employer. It is by nature protective for workers, but it does not impose excessive rigidity on
the employer for establishing discipline and efficiency in the workplace or carrying out
necessary adjustments of the workforce.

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Dismissals in Japan
Part Two: How Frequently Do Employers Dismiss Employees?

Introduction
In Dismissals in Japan Part One: How Strict is Japanese Law on Employers?1 the
authors examined the substantive and procedural structures of the dismissal law in Japan,
and concluded that the dismissal law was neither too strict nor too loose for employers despite its stereotypical image of excessive strictness.
Following Part One, this Part Two intends to depict the practice of dismissals in
Japan. The authors first try to assess the frequency or infrequency of dismissals within firms.
The authors then describe how dismissals are handled in firms human resource management (HRM), labor management relations and dispute resolution processes. They further
examine the extent of mobility in the Japanese labor market with a view to assessing the
effect of the practice of dismissals on the labor market.

1.

Individual Dismissals in HRM

1.1 Frequency of Dismissals


First of all, how frequently (or infrequently) do employers resort to dismissals in Japan? In March 2012, the Japan Institute for Labour Policy and Training (JILPT) conducted
a large-scale survey regarding practices of hiring and termination, by sending questionnaires
to about 20,000 firms across industries and firm sizes, 29.8% of which sent back responses.2
This was JILPTs second survey regarding hiring and dismissal practices, following the first
one conducted in 2004. These serial surveys may be regarded as the first major attempt to
obtain empirical data on the practice of dismissals and other related measures in all workplaces in Japan.
According to the 2012 JILPT Hiring and Termination Survey,3 16.0% of the 5,964
1

Japan Labor Review 11, no. 2 (2014): 8392.


JILPT, Jugyoin no Saiyo to Taishoku ni Kansuru Jittaichosa [Survey on practices regarding hiring and termination of employment], JILPT Domestic Labor Information 1403 (Tokyo: JILPT, 2014).
Hereinafter cited as the 2012 JILPT Hiring and Termination Survey. See Appendix Table (page 30)
for the composition of the firms which responded to the 2012 JILPT Hiring and Termination Survey.
3
The authors, hereinafter, wholly use the data of the 2012 survey since the data of 2004 survey
shows the same tendencies as the 2012 survey.
2

11

Table 1. Reasons for Individual Dismissals

Source: 2012 JILPT Hiring and Termination Survey.


Note: Percentages are among the number of firms that dismissed
employees for individual reasons during 20072012.

responding firms in Japan had dismissed one or more regular workers during the five year
period between 2007 and 2012 for individual reasons distinguished from firms economic
necessity. It is notable that 30.3% of 76 larger firms with 1,000 or more employees responded that they had dismissed regular workers for such reasons during the same period.
Such figures make us dubious about the theory that it is almost impossible for employers to
fire regular workers in Japan.
The reasons for dismissals executed by 16.0% of firms in the same survey are classified in Table 1. The survey demonstrates that dismissals for employee misconduct, disorder,
absence or insufficient job performance are actually not rare.

1.2 Cautious Approach on Dismissals in HRM


One could recognize in the previous section that firms resorted to dismissals not so
infrequently in cases of employees misconduct, disorder, absence or insufficient job performance. Nevertheless, one should also note that the employer does not directly dismiss
his/her employee when finding some problem with the employee. The employer ordinarily
deals with such a problem with educational or disciplinary means other than dismissals.
This is particularly true when the employer takes some disciplinary sanctions against employee misconduct.
The Labor Standards Act requires businesses employing ten or more employees to
draw up and promulgate employment regulations stipulating rules and working conditions
in workplaces. Abiding by the law, most firms set forth such regulations, and most of such
regulations stipulate the means and procedures for disciplinary actions against employee
misconduct and poor performance. Thus, firms take steps against misconduct, etc., before
resorting to individual dismissals, such as delivering a warning, giving a chance to correct
behavior or to improve performance, ordering a transfer or, in a case of grave misconduct,
requesting voluntary retirement.
Employers choose the means of sanction in accordance with the nature, type, and degree of the misconduct. Generally speaking, it is only when firms find that the misconduct
is too grave to be dealt with by other means that they resort to dismissals. Table 2 shows a
12

Table 2. Firms Progressive Disciplinary Actions

Source: 2012 JILPT Hiring and Termination Survey.


Note: Disciplinary discharge is the most severe sanction accompanying,
in most cases, deprivation of retirement benefits.

Table 3. Steps Taken before Dismissal

Source: 2012 JILPT Hiring and Termination Survey.

variety of disciplinary actions with the ratio of selection, and Table 3 indicates the ratio of
steps other than dismissals taken against employee misconduct or poor performance.
As mentioned in Part One, in judging the abusiveness of individual dismissals, the
court usually takes into consideration due process before dismissal, such as giving a warning or affording a chance to correct conduct or improve performance. Such an approach in
the court is in conformity with the common HRM practices noted above.

2.

Collective Redundancy in HRM


The next issue is collective redundancy, which may generate economic dismissals.

2.1 Labor Management Efforts to Avoid Economic Dismissals in Case of Collective


Redundancy
First of all, the 2012 JILPT Hiring and Dismissal Survey found that 8.6% of the responding firms had resorted to economic dismissals during the last five years.
The survey also found that labor unions played an important role in the course of re13

dundancy. Regarding enterprises where labor unions were organized, 68.7% of employers
consulted with unions concerning economic dismissals. In contrast, only 19.9% of enterprises not organized by labor unions consulted with some form of workplace delegates
concerning economic dismissals.
Typically, in the case of redundancy, labor and management at each enterprise first
engage in joint consultations to share information and to form understanding on the scale
and gravity of business crises. They then discuss a wide range of practical issues, including
the goals of cost reduction and the methods to attain them. In particular, they perform serious negotiations on the necessity of reducing the workforce and means of doing so. When
labor and management find it necessary to resort to termination of employment at a certain
scale, they work out a voluntary-retirement program with additional compensation as generous as they can afford. They find dismissals unavoidable only when they cannot attain the
goal of downsizing of employment with such alternative measures. They then discuss the
number of employees to be dismissed, the amount of additional retirement payment, and the
method of selecting such employees. Most of those labor and management negotiations are
carried out successfully, with adjustments made to their positions. According to the 2012
JILPT Hiring and Termination Survey, labor and management reached agreements in 84.1%
of negotiations resulting in economic dismissals.

2.2 Transition of Labor and Management Approach on Collective Redundancy


The labor and management practice of pursuing solutions other than dismissals in
cases of redundancy was established during the period of employment adjustment after the
1973 oil crisis.
Since labor unions were liberalized in 1945 in the course of post-World War II reforms to democratize Japan, unions had been imbued with leftist class-struggle ideology
and had engaged in aggressive drives against management to defend worker interests in the
postwar economic turmoil. Management, on the other hand, directly resorted to massive
dismissals to get rid of large-scale redundancy caused by hardship under the deflationary
policies of the government. Unions naturally resisted fiercely with radical and prolonged
industrial actions. Such antagonistic union-management relations continued even when Japan overcame postwar economic difficulties and entered an economic growth period starting the mid-1950s.
Their confrontation culminated in the 1960 Mitsui Miike Coal Mine Dispute involving massive economic dismissals to resolve redundancy in the declining coal mining industry. The coal miners industrial union launched a large-scale strike with indefinite period,
and the largest national labor organization, Sohyo (the General Council of Trade Unions in
Japan) mobilized thousands of workers to support massive and forcible picket lines. Management was also determined to reestablish production, with the full support of financial
institutions. The dispute lasted for a full year, generating violent clashes and public disorder.
The result was a defeat for the union, but labor and management realized the high price of
14

fierce labor-management confrontations. Japan has experienced very few large-scale violent
labor disputes ever since.
The Japanese economy enjoyed high and stable economic growth until the oil crisis
of 1973, which caused hyperinflation. Many industries, such as electric appliances and textiles, faced economic difficulties. However, unions and management had developed, by this
time, joint consultation procedures at the enterprise level to work out solutions on managerial matters affecting employees. Thus, through such procedures, labor and management in
those industries struggled to prevent the termination of employment by working out alternative solutions to attain necessary reductions in workforce, such as diminution of working
hours, transfers, and temporary layoffs.4 Even when it seemed inevitable to reduce the
number of employees, they first resorted to attrition (suspension of new hiring), and then
attempted to call for voluntary retirements instead of dismissals.5 Thanks to serious discussions between labor and management, they could prevent confrontational disputes.
Even during the long-term economic slump starting in the early 1990s and intensifying after the 1997 Asian financial crisis, labor and management maintained the same practices toward employment adjustment. Recently, even during the global recession beginning
in 2008 as well as during economic difficulties after the Great East-Japan Earthquake in
2011, labor and management still tried to arrive at moderate solutions other than dismissals
as much as possible. One should emphasize that the practice of pursuing milder solutions
during redundancy is not a consequence of the legal regulations governing dismissals, but
the product of the deliberate efforts of labor and management to attain necessary labor-cost
cuts while minimizing sacrifice of employment.

2.3 Data on Economic Dismissals in Contemporary Japanese Workplaces


As mentioned in 2.1, the 2012 JILPT Hiring and Dismissal Survey found that 8.6% of
the responding firms had resorted to economic dismissals during 20072012. Considering
that the surveyed five-year period included the global financial crisis that began in 2008,
one may infer that Japanese firms demonstrated rather a restrictive attitude toward economic dismissals. The question, then, is how Japanese firms deal with, in contemporary HRM,
collective redundancy caused by economic downturns.
Facing the necessity of reducing labor costs, most firms first make efforts to avoid
personnel reduction by choosing a variety of alternative measures, such as limiting overtime
work, personnel relocation (transfers to other departments or group enterprises), cuts in bonuses, containment of annual wage increases, temporary layoffs,6 etc. Even when firms find
4

In Japan, temporary layoffs means measures to endow days off to employees as a means to
temporarily reduce production. It does not have the effect of terminating employment even temporarily.
5
The government also passed the Employment Insurance Act, in 1974, to subsidize a substantial
portion of the wage costs of employers, who maintain employment in the case of collective redundancy with the measures of transfers to related firms, educational programs, or temporary lay-offs.
6
The Labor Standards Act requires firms to compensate at least 60% of wages during temporary

15

Table 4. Steps Taken before Dismissal for Economic Reasons

Source: 2012 JILPT Hiring and Termination Survey.

reductions in the number of employees unavoidable, they still try to stay away from dismissals by resorting to other means, such as suspension of recruitment (attrition) or solicitation
of early (voluntary) retirement.
Table 4 indicates the measures that were taken before resorting to dismissal by the
responding firms during 20072012, with the percentages of selection. The same table indicates that 25.3% of the responding firms called for voluntary retirement during the same
period. This percentage was much higher among larger enterprises (47.4% of the firms with
more than 300 employees). Generally speaking, it has been rather rare that large public-listed firms resort to dismissals of their employees due to economic necessity.7
As shown in Part One, Japanese employment laws do not require additional severance
pay to mitigate the loss of jobs due to redundancy. However, as a matter of HRM practices,
various benefits are usually offered to dismissed workers, which are laid out in Table 5 with
the percentages of selection.
Table 6 shows the distribution of the amounts of additional severance pay found by
the same Survey. One finds that approximately one-fourth of the firms paid an amount corresponding to approximately six months salary and one-fifth an amount equivalent to a few
months salary. It should be noted that there was a significant difference between larger
firms with 300 or more employees and smaller firms with less than 100 employees. In the
case of the larger firms, 76.9% paid more than six months salary, while only 33.4% of the
layoffs. Firms can receive subsidies from the Employment Insurance Program to make up for their
wage costs for temporary lay-offs, educational programs, or transfers across group enterprises.
7
According to the survey of TSR (Tokyo Shoko Research), 2012-nen no Omona Jojo Kigyo no
Kibo Taishokusha Boshu Jokyo Chosa (Survey on the solicitation of voluntary retirement by listed
corporations in 2012) issued Feb. 2013, 63 companies listed on Japanese stock markets called for
voluntary retirement. The total number of people solicited to be retired was 17,705. On the other hand,
it is rather rare that collective (economic) dismissals at large companies are reported.

16

Table 5. Benefits Afforded for Redundancy Termination

Source: 2012 JILPT Hiring and Termination Survey

Table 6. Amount of Additional Severance Pay

Source: 2012 JILPT Hiring and Termination Survey.


Note: The data consists of only the firms that paid additional severance pay.

smaller firms paid the same level of severance pay.

2.4 Changes of Case Law regarding Economic Dismissals


As was already mentioned above and in Part One, labor and management came to
avoid dismissals as a means of reducing the workforce after the 1973 oil crisis, and such
practices of employment adjustment have been integrated into court decisions dealing with
economic dismissals since the latter half of the 1970s. In deciding whether economic dismissals are abusive, the court first required firms to meet all of the four standards8: (a) substantial economic necessity to reduce the workforce; (b) exhaustive efforts to avoid dismissals as a means of the reduction; (c) selection of employees to be dismissed with objective
and rational criteria; and (d) sufficient labor-management consultation.
Two decades later, in the 1990s, the Japanese economy went into a long-term stagnation, which forced Japanese companies to execute a large-scale restructuring of their businesses. Observing the difficulties faced by businesses, the courts partly changed the framework of judgments on economic dismissals.
8

A representative decision is Toyo-Sanso, Tokyo High Court, Oct. 29, 1979.

17

In earlier decisions, the court required firms to meet all of the four standards to win
the judgment that an economic dismissal was not abusive. However, the court came to relax
this regulatory framework in the 2000s. In specific terms, the court is now inclined not to
examine the four standards independently, but to scrutinize standards relatively to reach a
conclusion based on the entirety of the relevant facts.
This change of approach typically took effect in cases involving dismissals of redundant employees with generous termination packages. In one case, for example, a Japanese
subsidiary of a British bank eliminated one business branch that had lost profitability, and
dismissed a branch manager who did not agree to early retirement with a large amount of
severance pay and outplacement service. Relying on the old regulatory framework, the court
at first temporarily held the dismissal as abusive, because the firm did not make efforts to
create vacancies in other branches so as to absorb the manager (failure of meeting the second standard). However, in the subsequent decision involving the same dismissal, the court
relaxed the framework in the way mentioned above and approved the validity of the dismissal, holding that it is not abusive considering the generous retirement package offered by
the firm.9
Also, the court occasionally renders a decision holding economic dismissals not
abusive, even though a firm reduced the workforce by partially resorting to economic dismissals to cope not with deficits but with decreased profits in business (so-called aggressive
restructuring) if the firm offered a generous package to minimize dismissals.10
In general, the court still requests that firms meet the four standards as much as possible. However, the court is more likely to allow employers to take measures on a
case-by-case basis to cope with redundancy.

3.

Practices in Processing Dismissal Disputes

In Part One of this article, the authors explained the structures and elements of administrative and judicial procedures to resolve disputes involving dismissals. In Part Two,
the authors further discuss practical features of processes to resolve disputes involving dismissals.

3.1 Overview of Processes to Deal with Dismissal Disputes


First, it should be emphasized that only a small percentage of employees bring complaints
about dismissals to the employer. According to the 2012 JILPT Hiring and Termination
Survey, 78.4% and 79.4% of firms that dismissed employees for individual and economic
reasons respectively during the 2007 through 2012 period did not have any conflicts with
such employees.
9
10

18

National Westminster Bank, Tokyo District Court, Jan. 21, 2000.


The Development Bank of Singapore, Osaka District Court, Jun. 23, 2000.

Source: 2012 JILPT Hiring and Termination Survey.


Note: This data consists of firms that answered that disputes occurred over dismissal.

Figure 1. How Dismissal Disputes Are Resolved


Secondly, according to Figure 1 summarizing the data of the same survey, even when
dismissals gave rise to disputes, about half of such disputes (45.5% and 53.8% of those involving individual and economic dismissals respectively) were resolved through dealings
between the dismissed employee and his/her employer.
Thirdly, according to a Ministry of Welfare and Labor (MHLW) survey,11 a little
fewer than 40% of enterprise-based unions have formal grievance procedures instituted in
their written agreements with the enterprise. Such procedures usually set forth a few formal
steps of negotiations between union and management to resolve grievances brought by union members. However, complaints tend not to follow such grievance procedures, and even
if they are made known to unions, they are not usually brought in line with grievance procedures. In daring to support the grievances of their members, unions are inclined to attain
some solution through either informal dealings or formal collective-bargaining sessions
with management. As a consequence of such labor management practices, the percentage of
dismissal disputes resolved by grievances procedures is small, as shown in Figure 1 (2.1%
and 5.8% of individual and economic dismissals respectively).
Fourthly, according to the same JILPT survey, 51.1% and 52.0% of disputes involving individual and economic dismissals respectively were resolved by administrative
11

MHLW, Survey on Collective Agreements (2011).

19

Table 7. Measures Selected to Resolve Dismissal Disputes

Source: 2012 JILPT Hiring and Termination Survey.


Note: This data consists of firms that answered that they had had disputes over the
dismissal during 20072012.

procedures (counseling, or advice and conciliation services offered by MHLW Prefectural


Labor Offices) or judicial procedures (labor tribunal and civil litigation procedures conducted by the court) during 20072012. The composition of resolutions attained by such
external procedures is indicated in Table 1 in Part One also presents the number of dismissal
disputes that were settled in those external procedures during fiscal 2012 on the basis of the
statistics of MHLW and the Supreme Court.

3.2 Contents of Arrangements to Settle Dismissal Disputes


Table 7 shows the measures selected to resolve dismissal disputes in both internal
(between employee and employer) and external (administrative and judicial) processes. One
finds that one-fifth of the disputes were resolved without any additional measures, and half
of them were solved by means of paying additional compensation. It should be noted that
only a small number of employees were reinstated; the percentage was approximately five
percent of the number of dismissal disputes.
Also, according to different sources, even in the resolutions attained by administrative
conciliation and labor-tribunal procedures, reinstatements were very rare (Table 8). One of
the factors is that most of the employees who file complaints with the administrative office
or labor tribunal do not insist on reinstatement. In most cases, they seek monetary compensation to settle dismissal disputes.
Though the amounts of monetary compensation ranged widely, most of them were at
rather low levels. Half of them fell below 175,000 yen in conciliation settlements by administrative offices, and 1,000,000 yen in decisions or settlements following labor tribunal
procedures (Table 9).12 The lower levels of monetary settlement in administrative
12

Regarding settlements in civil courts, the average payment amount was estimated as 6,640,500
yen. JILPT, Kaiko Muko Hanketsu Go No Genshoku Fukki no Jokyo ni Kansuru Chosa Kenkyu [Survey on reinstatement after court decisions holding dismissal as invalid], JILPT Research Material
Series no. 4 (Tokyo: JILPT, 2005).

20

Table 8. Resolution of Dismissal Disputes

Sources: 1Kobetsu Rodo Kankei Funso Shori Jian no Naiyo Bunseki [Analysis of the
contents of resolutions in individual dispute cases], JILPT Research Report no. 123
(Tokyo: JILPT, 2010). This was a survey on conciliation of four administrative offices in fiscal year 2008. This data consists of employment termination cases that
were settled (N=233). Termination of employment includes not only dismissal but
also voluntary retirement, expiration of fixed-term contacts, mandatory retirement,
etc.
2
Rodo Shinpan Seido ni tsuite no Ishikichosa [Survey on attitude toward labor tribunal
procedures], Institute of Social Science, the University of Tokyo (October 2011). This
data consists of workers who appeared before the tribunal at the date of the oral announcement of the decision or conciliation of the Labor Tribunal Procedure between
July 12 and November 11, 2010, and answered the questionnaire (N=302). This number includes many different types of workplace disputes.

Table 9. Amounts of Monetary Compensation

Sources: 1Kazuo Sugeno and others, eds., Rodo Shinpan Seido no Riyosha Chosa [Labor
tribunal system: Users survey] (Tokyo: Yuhikaku, 2013).
2
JILPT Research Report no.123 (2010).
3
Institute of Social Science, University of Tokyo (2011).

conciliations may be attributable to the fact that conciliators mainly seek to attain a quick
and amicable solution rather than to examine the legal merits of the case.
Another feature of the administrative conciliation and the labor tribunal procedures is
their rapid resolution. Regarding the conciliation by the administrative offices, the median
duration between the submission of complaints and conclusion of the procedure was found
to be approximately thirty days.13 One can emphasize that early resolution is what the dismissed employees really desire. This would make it possible for the employees to seek and
find a new job earlier, and that should also contribute to the mobility of the labor market.
13

JILPT Research Report no.123 (2010). The four major prefectural offices are Chiba, Nagano,
Osaka and Shimane. Those offices disposed of 1,144 conciliation cases, which represent 13.5% of
8,457 cases disposed of by the entire 47 offices.

21

Table 10. Number of Conciliation Cases regarding


Employment Termination by Firm Sizes

Source: JILPT Research Report no. 123 (2010). Re-calculated by authors.


Note: 1Percentage among the number of firms the sizes of which were
known (N=628).

4.

Different Features of Dismissals in Small Businesses

The authors have so far described the tendencies of practices in HRM and labor
management relations, as well as the features of dispute-resolution processes, regarding
dismissals in Japan. One should yet further explain, in these respects, about different features of dismissals to be found in small firms.
One can grasp such features through a recent study on conciliation cases involving
employment termination disputes handled by the prefectural administrative offices of
MHLW, since the large part of such conciliation cases are brought in by workers at small
businesses.
JILPT conducted an extensive study on individual labor-dispute conciliation cases
handled by the four representative prefectural-administrative offices of MHLW during fiscal
2008.14 It made intensive analyses of the voluminous records of such cases to examine
reasons and motives for the dismissals contained therein.
According to this study, the four administrative offices dealt with 756 conciliation
cases arising from employment termination disputes in fiscal 2008 (Table 10). In terms of
firm sizes, 90.1% of these conciliation cases were those generating from firms with 300 or
less employees (small and medium sized enterprises).15
Table 11 shows the composition of employment termination conciliation cases involving small and medium-sized enterprises (SMEs), by type of employment termination.
The table shows that the cases involved not only dismissals but also other types of employment termination such as solicitation of voluntary retirement, resignation for personal reasons, or termination of fixed-term contracts.
14

This is an elaboration of Keiichiro Hamaguchi, Chief Researcher at JILPT. See also JILPT, Nihon no Koyo Shuryo [Employment termination in Japan] (Tokyo: JILPT, 2012); Keiichiro Hamaguchi,
Analysis of the Content of Individual Labor Dispute Resolution Cases: Termination, Bullying/Harassment, Reduction in Working Conditions, and Tripartite Labor Relationships, Japan Labor
Review 8, no.3 (2011): 11837.
15
Workers in small or medium-sized enterprises account for about 69% of total workers (Ministry
of Economy, Trade and Industry).

22

Table 11. Employment Termination Conciliation Cases Involving SMEs


by Types of Termination

Source: JILPT Research Report no. 123 (2010). Re-calculated by authors.

Table 12. Grounds for Individual Dismissals regarding Conciliation Cases


Involving Dismissals by SMEs

Source: JILPT Research Report no. 123 (2010). Re-calculated by authors.

Table 12 shows the in-depth grounds for individual dismissals. The survey revealed
the tendency of SMEs to dismiss their employees by the reasons clearly inappropriate or
unlawful, such as dismissing workers for the exercise of rights guaranteed by the labor statutes (e.g., employees request for statutory annual paid leave), or for expressing critical
views on, e.g., the firms managerial or personnel policies. The survey also found many
cases in which SMEs dismissed employees upon their refusal to accept management pro23

posals to alter working conditions (jobs, workplaces, wages, etc.).


The survey also found that SMEs dismissals are frequently attributed to employers
distaste for employees rational attitudes. Typically, there were cases in which employees
were dismissed when refusing to obey managements orders to neglect legal duties. One
could even find cases of dismissal caused by his/her disagreement with the boss on minor
matters. Sometimes, the employees were discharged for obscure reasons, such as that the
employees did not match the firms culture or did not have good relationships with his/her
colleagues. In some cases, the reason alleged by the employer could be regarded an excuse,
and the real motive for the dismissals was estimated as the employers dislike of the employees personality.
Also, in many cases of dismissals for alleged poor performance, the employer could
not demonstrate concrete or specific facts substantiating the allegation, presenting only abstract reasons such as low performance or lack of aptitude.
Regarding economic dismissals appearing in conciliation processes, the study found
that, in a majority of cases, firms did not specifically clarify economic necessity, merely
stating in abstract terms that the company run into financial difficulties, etc. In many of
those cases, one could suspect, from the records of cases, the existence of other motives of
dismissal, such as expelling a strong dissident or a poor performer from the management
viewpoint. The study found the tendency of SMEs to make use of economic necessity as a
panacea to get rid of employees undesirable for management, which is in sharp contrast
with the case law restricting economic dismissals.
Thus, one could presume from the findings of the JILPT study of conciliation cases
involving dismissal disputes that SMEs are not so conscious of case standards relating to the
law of abusive dismissals, but are exercising the right of dismissal rather easily and discretionarily.
This distinctive tendency of SMEs is closely related with the sharp contrast of union
density between larger and smaller firms. Larger firms ordinarily have labor unions organizing their regular employees, while smaller firms scarcely have such unions.16 One of the
greatest concerns of enterprise unions is the employment security of their members. Enterprise unions accordingly endeavor to clarify the standards and procedures for dismissals in
collective agreements and employee regulations. They also engage in intensive consultations with management to jointly work out measures to cope with economic changes affecting employment. Management is also keenly aware of these strong union concerns, and
16

24

Union density by firm sizes is shown below:

takes a cautious attitude toward dismissals to maintain cooperative industrial relations. One
does not often find such a thoughtful approach in SMEs dismissal practices.17

5. Relationship between Dismissals and Labor Mobility


So far the authors have described the legal regulations governing dismissals in their
substantive and procedural aspects (Part One), and analyzed dismissal practices in firms
HRM and labor management relations (Part Two). The remaining issue, then, is the relationship between the law and practices of dismissals and the state of labor market. The central question is whether the law and practices of dismissals as have been described have a
negative effect on labor mobility.
First, according to government statistics, the Japanese labor market seems to demonstrate significant mobility due to job turnover. For example, the Survey on Employment
Trends (by MHLW) shows that 6,730,000 workers left their employment during 2012
(14.8% of the total number of workers).
In addition, during the last decade, Japan experienced a dynamic work shift mainly
from the manufacturing industry to the medical, health care and welfare sector. According
to the Labour Force Survey (Ministry of Internal Affairs and Communications [MIC]),
workers employed in the manufacturing industry decreased from 10,910 to 9,890 thousand
persons in the decade beginning 2003, while those employed in the medical, health care and
welfare sector increased from 4,690 to 7,040 thousand persons in the same decade (workers
in the wholesale and retail trade also increased from 9,390 to 9,560 thousand persons). The
entire job turnover rate has been trending upward since the middle of the 1990s, as Figure 2
indicates, despite the long-term and serious slump of Japanese economy since late 90s.18
Secondly, one should also note that the dynamic work shift from the manufacturing
industry to the medical, health care and welfare sector, as described above, does not mean
17

One should, however, note that there are many small general or industrial unions organizing
employees of smaller enterprise within certain regions. Such regional unions make efforts to protect
their members against abusive or unlawful dismissals through negotiations with management. In the
case of failed negotiations, such unions make use of MHLWs administrative conciliation services,
mediation or unfair labor practice procedures of the Labor Relations Commissions, or labor tribunal or
civil suit procedures of the court. Regarding the functions performed by regional unions, see Hak-soo
Oh, Roshi Kankei no Furontia [Frontiers of industrial relations in Japan] (Tokyo: JILPT, 2012).
18
According to the Basic Survey on Wage Structure 2013 (MHLW), the average length of service
of regular workers (excluding part-time workers) in Japan was 11.9 years, which is much the same as
many OECD countries (i.e. the average length of service of total employees in Germany in the same
period was 11.4, 12.2 in France, 12.7 in Italy, 9.0 in the U.K. (OECD Data Base, Employment by job
tenure intervals)). The U.S. A. had the median of 4.6 years (U.S. Department of Labor, Employment
of Tenure in 2012). The length of service might be more different among industries than among countries. In Japan, it was 14.0 years for the manufacturing industry, while it was 8.4 years for the accommodation and food service industry. In Japan, the average length of service of 50- to 54-year-old
workers has been declining since the mid-1990s. That length for 45- to 49-year-old workers has been
declining since the early 1990s.

25

Source: MHLW, Survey on Employment Trends.

Figure 2. The Ratio of Hirees Who Had Changed Jobs


that manufacturing industry workers have massively moved to the medical, health care and
welfare sectors. As Table 13 below shows, 46.3% of the workers who left manufacturing
firms found new jobs again in the manufacturing industry, and only 7.9% found new jobs in
the medical, health care and welfare sector. It is not easy for workers to find jobs in new
fields they have not experienced. Labor market policies that merely demand workers move
out of declining businesses may only have the effect of generating unemployment.
Thirdly, the most frequent type of job (employment) changes is worker resignation
for personal reasons. During 2012, 4,680,000 workers resigned from employment for personal reasons including desire to change employment. They constituted 69.5% of the total
employment turnover. On the other hand, the percentage of workers leaving employment
due to their employers economic necessity was only 4.0%, which included not only dismissals but also agreed (or voluntary) terminations of employment due to economic reasons.
In addition, summing up dismissals for both economic reasons and personal reasons (such
as misconduct, dissatisfaction with employee performance), dismissals represent only a
small portion of the labor turnover.19 From this viewpoint, facilitating or encouraging dismissals does not seem to be an effective means of enhancing mobility of the labor market.
Fourthly, as indicated in Figure 3, the number of workers who left employment due to
their employers economic necessity increased significantly in 2009, in the wake of the
global financial crisis, signifying that firms do reduce a large number of workers in the face
of economic crises although the reduction may not be to their desired scale.
Finally, courts judged merely 343 cases regarding employment terminations in fiscal
2012, a number that should be considered too small to affect the entire labor market. Most

19

One can estimate from the Survey on Employment Trends that the percentage of dismissals for
both economic reasons and personal reasons was less than 4.9%.

26

27

Source: MIC, Employment Status Survey (2012).


Note: Workers who changed jobs (employment) in the last five years.

Table13. Job Turnover (Former Industries and Present Industries Workers Belong to)

Source: MHLW, Survey on Employment Trends.

Figure 3. Workers Who Left Employment Due to Economic Necessity


dismissal disputes are resolved by the administrative or judiciary fast-track services20 rather
than by civil litigation.
In short, there seems to be little evidence demonstrating the negative effect of Japanese dismissal laws and practices on labor mobility. Moreover, what is important in evaluating dismissal laws and practices is not only economic efficiency but also the fairness of an
industrial society. From this perspective, one should not impose the burden wholly on
workers in cases of redundancy, since it is usually difficult for dismissed workers to find a
new job in an economic downturn. It is particularly so for older ones fifty or more years of
age, whose wages often decrease significantly even if they manage to find a new job.21 In
addition, dismissals can have a negative impact on mental health.22

Conclusion
Summarizing the practice of dismissals depicted here in Part Two, even in Japan, not
a negligible but a substantial ratio of firms implement dismissals. Characteristically, however, they resort to dismissals in a thoughtful manner. In cases of employees misconduct, or
insufficient job performance, employers do not resort directly to dismissals, but take cau20

Administrative conciliation services or judicial tribunal procedures.


In these situations, 35.7% of 5054 year old and 34.9% of 5559 year old workers experienced
lower wages after job turnover in 2012. MHLW Survey on Employment Trends.
22
According to a survey by Hisata and Takahashi, the average General Health Questionnaire 28
indicator was much higher regarding dismissed workers (N=34) than the average for healthy people.
Mitsuru Hisata and Miho Takahashi, Ristora ga Shitsugyosha oyobi Geneki Jugyoin no Seishin
Kenko ni Oyobosu Eikyo [Influence of firms restructuring on unemployed and employed workers],
The Japanese Journal of Labour Studies 45, no. 7 (2003): 7886.
21

28

tious steps, such as delivering a warning to give the employee a chance to correct his/her
behavior. Dismissals are executed only when the misconduct is too grave to use other means.
In times of redundancy, firms endeavor to achieve the necessary adjustment of employment
with milder solutions other than dismissals. Firms strive to strike a balance among the interests of various stakeholders, including the workers, regarding whether workers are to
remain or to leave in the course of redundancy. Employers usually engage in extensive joint
consultations with the unions organizing their employees in working out means to cope with
redundancy. Their last resort is often not dismissals but solicitation of early voluntary retirement with increased retirement benefits.
This cautious approach on dismissals was an outcome of HRM under the long-term
employment system as well as enterprise-based labor management collaborations. By comparison, legal regulations governing dismissals played a much smaller role, in the authors
view.
It should be noted, however, that the features of dismissals are considerably different
in small businesses. They are unlikely to follow such cautious steps as are ordinarily taken
by larger firms. Small businesses do not have sufficient economic or human capacity to emulate the pattern of larger businesses. Nor are labor unions often organized in small enterprises.
With regard to the features of the processes to deal with disputes involving dismissals,
JILPT surveys find that even if such disputes arise, most of them are resolved within the
firms. Rather a small percentage of them are subjected to external procedures, most of
which are resolved expeditiously through various forms of administrative or judiciary services such as counseling, advising, conciliation, mediation or awards. In consequence, only
very few employees file suits with the courts, and court decisions holding the dismissal null
and void are exceptional among dispositions of dismissal disputes in administrative and
judiciary procedures. Thus, dispute resolution processes are not imposing a high level of
cost on either employees or employers.
The final issue the authors addressed was whether the law and the practices of dismissals as described in Part One and Part Two had any negative effect on the mobility of
workers in the labor market. The authors find there is significant mobility in the Japanese
labor market, a significant scale of job turnover, and an increasingly high job-turnover rate.
One can also recognize a considerable shift of the workforce from the matured manufacturing industries to the growing healthcare and welfare sectors. Encouraging dismissals could
yet be neither an effective nor a fair means to enhance labor market mobility. Considering
that a large portion of job turnover is, as a matter of fact, taking place within the same industry, the policy to be pursued is to help workers in matured industries to acquire new
skills or abilities needed for growing industries, to provide information and consultation
services so they can find new workplaces, and to help growing firms to employ workers
smoothly using matching services.

29

Appendix Table: The Composition of the Firms Which Responded to


the 2012 JILPT Hiring and Termination Survey

30